A Hard Look at Tax Software: 2003 Annual Survey of New York Practitioners
By Susan B. Anders and Carol M. Fischer
In Brief
High User Familiarity and Satisfaction
In a survey of New York State CPA firms, the authors find a high level of familiarity and satisfaction with tax preparation and research software. The use of e-filing, online client organizers, and application service providers is expanding. The use of firm websites is also increasing rapidly. The CPA Journal plans to continue this annual update on tax software, in the future moving the timing of the survey distribution to November and the publication of results to the July technology issue. If you would like to participate, or if you have other comments for the authors, please e-mail the editors at cpaj-editors@nysscpa.org with “tax software” noted on the subject line.
Tax practice has changed significantly over the last decade as computer technology
has enabled local and regional practitioners to adopt sophisticated tax compliance
and research software to better service their clients. The relatively low
cost and high availability of Internet resources have also influenced the
way accounting professionals communicate with existing and potential clients.
New York State tax practitioners are increasingly relying on technology to
meet their clients’ needs, and report a relatively high level of satisfaction
with available software.
As a follow-up to their 2002 survey (published in the November 2002 CPA Journal), the authors surveyed local and regional practitioners in New York State concerning their choices of tax preparation software and their assessments of the strengths and weaknesses of the tax software they are currently using. The survey also asked respondents to rate tax research software and addressed how tax professionals use technology to complement other aspects of tax practice. Finally, the survey assessed the extent to which New York State practitioners use their own websites as a form of outreach to clients and potential clients.
The survey was mailed to 400 New York State CPA firms selected at random from online yellow pages and CPA directories. A total of 124 completed surveys were received (31% response rate). Because the survey focused on tax software and Internet usage, it is possible that respondents are more comfortable with computer technology than other practitioners. Nonrespondents may not utilize such resources to the same extent or in the same ways as the survey respondents.
Tax Preparation Software
Tax practitioners face more changes in tax preparation software than just the annual changes in the tax law. The tax software industry is highly competitive, and practitioners continue to encounter changes in the availability of tax packages due to mergers and consolidations. Online tax services, originally utilized only by taxpayers preparing their own tax returns, are growing in popularity with professional tax preparers, but are still used by less than 20% of respondents.
Important considerations in choosing a tax software package or an online service include cost, user friendliness, customer support, available features, updates, state tax software, company reliability, and user familiarity. The survey listed 24 of the most commonly used tax return software vendors, based on a review of print and electronic media. All 124 respondents indicated that they used at least one tax preparation software package. The 124 respondents reported using 14 of the 24 tax return software companies; the ratings for these 14 vendors are summarized in Exhibit 1.
Several firms indicated the use of more than one tax preparation software product; consequently, a total of 151 ratings were received. Almost two-thirds of the ratings received were for three software packages: CCH ProSystem fx (38), Lacerte Software (38), and Intuit ProSeries (24). Three other packages received 10 or more ratings: Accountants World/MicroVision, Creative Solutions, and RIA GoSystem. Finally, ATX Forms was rated by eight respondents, while Abacus Tax Software, CPA Software, Drake Software, LamSon ExcelTax, Laser Systems TaxWorks, Tax$imple, and Universal TaxWise were each evaluated by only one or two users. The ratings for vendors with a smaller number of responses are included for the sake of completeness, but should be interpreted with caution.
Users ranked the vendors on a scale from 1 (very dissatisfied) to 5 (very satisfied). The average overall rating for all 14 vendors was 4.16, which indicates that most respondents were satisfied with the tax preparation software that they have been using. This is supported by the fact that only 15% of respondents indicated a plan to switch tax preparation software within the next five years. The lowest overall rated category was satisfaction with cost.
The highest overall ratings for vendors with at least 10 evaluations were for CCH ProSystem fx (4.46), Lacerte Software (4.32), Creative Solutions (4.14), and RIA GoSystem (4.05). Ratings of individual features, also provided in Exhibit 1, are consistent with these high overall ratings, suggesting that respondents were generally satisfied with all aspects of the software, except possibly the cost. With few exceptions, the average ratings of virtually all features for all software packages were higher than 3. User familiarity ratings were similar to the overall ratings, and suggest that tax practitioners are very familiar with their software.
Exhibit 1A provides descriptive detail on the tax preparation software users. CCH ProSystem fx and Lacerte were the most used vendors across all categories. CCH, Lacerte, and RIA were the only vendors used by firms that prepared 1,500 or more tax returns. CCH firms were likely to have more tax preparers than the Lacerte firms. Accountants World/MicroVision, ATX Forms, Creative Solutions, and Intuit ProSeries appeared to be more popular with the smaller firms than with the larger ones. RIA GoSystem seemed to be popular with both small and large users but not medium-sized ones.
Tax Research Software
This survey also asked whether practitioners utilized tax research software to facilitate legal research. The survey listed seven of the most commonly used tax research software vendors, based on a review of print and electronic media. Of the 124 respondents, 109 (88%) indicated that they used at least one tax research software package. In total, 168 ratings were received, because some firms indicated they used more than one tax research software product. The ratings for the seven vendors are summarized in Exhibit 2.
RIA had the most users at 38, followed by CCH, Kleinrock, and BNA with 36, 35, and 29 users, respectively. Two of the companies (LexisNexis/Matthew Bender and Tax Analysts) had only four or five users; thus, their ratings should be interpreted with caution.
Again, users ranked the vendors on a scale from 1 (very dissatisfied) to 5 (very satisfied). The average overall rating for all seven vendors was 3.88, and all of the overall ratings exceeded 3, indicating that most respondents were satisfied with their tax research software. Only 11% of respondents indicated that they planned to switch tax research software within the next five years. Similar to the tax preparation software, respondents rated virtually all of the features (except cost) for all of the tax research software packages as satisfactory. The highest overall rated vendors were CCH (at 4.06) and RIA (at 3.97). The user familiarity ratings were generally higher than the overall ratings, but lower than the level of familiarity reported for tax preparation software.
Exhibit 2A provides descriptive detail on the tax research software users. BNA, CCH, LexisNexis, and Tax Analysts were the most likely vendors to be used by firms that prepared 1,500 or more tax returns. BNA and LexisNexis were the most likely vendors to be used by firms with less than 25% of their practice in tax. Of the two highest-rated vendors, firms using CCH were likely to have more tax preparers than firms using RIA. The lowest-rated vendors, LexisNexis and Tax Analysts, had more users at the small and large ends than in the middle categories. Further information on all of the software vendors can be found on their websites, listed in Exhibit 3.
Other Technology Solutions
Exhibit 4 summarizes the responses to survey questions related to issues beyond the choice of tax return or tax research software. Tax practitioners face an increasing number of available options in online compliance resources. The survey results indicate that the respondents seemed more comfortable with high-tech approaches to tax research in 2003 than in 2002. Notably, there were some interesting differences between the 2002 and 2003 responses to these questions.
While only 46% of the respondents to the 2002 survey filed individual returns electronically, 64% of the 2003 respondents did. There was a slight increase in the percentage of respondents using an online client organizer (15% in 2003, compared to 12% in 2002) and processing returns via an application service provider (14% in 2003 versus 12% in 2002). Many tax practitioners and their clients may still have concerns about the degree of security provided by web-based data transmittal and information processing. A sizable minority of respondents that did not currently use these features, however, plan to adopt them within the next five years.
Consistent with the observation that tax practitioners have become increasingly comfortable with technology, Exhibit 6 reports that approximately 80% purchased CD-ROM–based tax research software and 46% conducted tax research via a proprietary Internet site. Most of the respondents utilized the IRS, New York State, and other state websites at least occasionally; the percentage of respondents reporting that they use these websites increased over the past year. Many respondents indicated the use of other websites in their tax practices. A summary of some of these tax resource sites, suggested by the respondents, is provided in Exhibit 5.
The Internet has provided an important resource to local and regional firms to generate new business, and an increasing number of CPA firms are taking advantage of this opportunity to attract new clients and service existing ones. Exhibit 6 summarizes the extent to which New York practitioners who responded to this survey use the Internet as a form of outreach to clients and potential clients. The percentage of respondents with their own website increased significantly, from 50% in 2002 to 75% in 2003. Of those firms with websites, 93% use the website to market the firm to new clients (as compared to 84% in 2002), and 67% use the site to provide a general means for clients to contact the firm (versus 63% in 2002). Approximately one-half of the firms use their website to market new services to existing clients and to provide an online client newsletter. A small, but significant, percentage of firms provide online tax organizers for their clients or allow their clients to submit information electronically via the website. Other purposes for firm websites included keeping up with the times, creating a professional image, and providing financial calculators and useful web links.
Analysis
In general, the survey respondents indicated a high level of familiarity and satisfaction with both tax preparation and tax research software, although concerns about the cost of these products were evident in the ratings. Respondents also demonstrated a relatively high level of reliance on the Internet in their tax practices, as well as use of a firm website. While it is important to recognize that computer-savvy practitioners were more likely to respond to the survey, these findings suggest that New York practitioners are embracing computer technology to better meet the needs of their clients and to position themselves for the future.
Although only a small percentage of the responding firms indicated a plan to change their tax preparation or research software within the next five years, the ratings provide valuable information on their colleagues’ opinions of their favorite software. Practitioners not currently using tax software can utilize this information to help them keep up with their competition. The results of the survey suggest that tax practitioners are expanding their use of, and their comfort level with, computer and Internet technology.
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